Restoration of pancreatic islet cells mass lost as a result of diabetes can provide a long-term cure for the disease. This restoration can be achieved by transplantation of exogenous islets, or by regeneration of the endogenous islet cell mass. At present both of these approaches are not practical for routine clinical applications: the islets necessary for transplantation are obtained from cadaveric pancreata, and are therefore in extremely short supply. In principle, this problem can be overcome by generating islets ex vivo from pancreatic stem and progenitor cells. Regeneration of the endogenous islets is difficult because of our current poor state of knowledge regarding the nature and properties of islet stem and progenitor cells. Hence successful implementation of both islet restoration approaches into clinical practice would require elucidation of biological properties of pancreatic stem and progenitor cells. Despite extensive effort, this goal has not been achieved yet. An in vitro system recapitulating a continuum of islet differentiation and morphogenesis would greatly facilitate progress in the field of pancreatic stem cells biology. To this end, we have developed a new in vitro culture system derived from adult human islet-enriched cell populations. Cells generated in these cultures proliferate and differentiate to form islet like cell clusters (ILCCs), which accumulate insulin-, glucagon- and somatostatin-expressing cells. Electron microscopic analysis shows that the cells comprising the ILCCs contain dense core secretory granules resembling those of native islet cells. The results of green fluorescent protein (GFP) retrovirus marking suggest that a proportion of beta-like cells in culture is derived from proliferating cells populations and are thus generated de novo. When tested in vitro, the ILCCs release insulin in response to glucose and other agonists of insulin secretion, with the kinetics characteristic of native islets. When implanted under a kidney capsule of immunodeficient non-diabetic mice, human ILCCs vascularize, survive, and release human insulin into circulation for a period of at least six weeks. We found that during the first several weeks of the graft life the level of human insulin in the mouse circulation decreases. This initial decrease is followed by a later gradual increase of human insulin level. These results suggest that human ILCCs can give rise to new insulin producing cells when transplanted in vivo, and thus may contain within them a subpopulation of islet stem and/or progenitor cells. To address this further, we carried out a detailed characterization of ILCC gene expression prior and post transplantation. The results of this analysis showed widespread expression of pancreatic endocrine hormones and other markers of pancreatic epithelia, as well as of several known markers of stem and progenitor cells of central nervous system (CNS).